49 Pages Posted: 22 Aug 2010
Date Written: August 20, 2010
This paper uses a novel empirical setting to explore the association between a firm’s operational risk, managerial monitoring costs, and how managers are compensated. We investigate a sample of supplier firms that rely on a few large customers for the bulk of their revenues. We predict that supplier firms with higher customer concentration face both higher exogenous idiosyncratic risk and lower monitoring costs and, as a result, will rely less on equity-based managerial incentive compensation contracts. Our empirical results support this prediction.
Keywords: CEO, Compensation, Customers, Incentives, Monitoring, Risk, Suppliers
JEL Classification: G30, D81, M40
Suggested Citation: Suggested Citation
Albuquerque, Ana M. and Papadakis, George and Wysocki, Peter D., The Impact of Risk and Monitoring on CEO Compensation (August 20, 2010). AAA 2011 Management Accounting Section (MAS) Meeting Paper. Available at SSRN: https://ssrn.com/abstract=1662594 or http://dx.doi.org/10.2139/ssrn.1662594
By Kevin Murphy